Sometimes Just Having Insurance Is Not Enough – The Importance of Timely Notice

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A recent holding by the Southern District of Texas – Houston Division relieved Great American Assurance Co. of its duty to defend or indemnify its insured, Apache Industrial Services, finding that Apache’s two-year delay in providing notice barred coverage.

In February 2021, Apache was performing maintenance turnaround at a refinery in Arkansas owned and operated by Lion Oil Company, LLC.   During these operations, Apache was responsible for constructing a cover for a temporary pipeline carrying sour naphtha, a highly flammable hydrocarbon.  Apache did so by placing blocks of wood alongside and over the pipeline, creating a ramp without a slope.  Thereafter, when another Lion Oil contractor drove over the pipeline, the contractor dragged the cover and pulled the pipeline free from its fitting, resulting in approximately 50-60 barrels of sour naphtha to leak.  Eventually, the leaking materials found an ignition source and exploded.

Nine individuals claiming personal injuries and Lion Oil claiming property damages and business interruption losses filed several lawsuits because of this leak and subsequent explosion.  Apache was named in three suits in Texas state court, filed by eight of the individuals, which were consolidated into multidistrict litigation.  On the day of trial in October 2023, Lion Oil settled two of the lawsuits for a sum more than the attachment point of Great American’s excess policy.  Three days later, a third suit settled exhausting more policies underlying Great American’s coverage.  Several suits remained pending against Apache.

According to Great American, it learned of this incident on its own, rather than by notice from its insured, Apache.  Great American sent Apache a letter asking whether it was seeking coverage under the policy and requested a response within 30 days.  Though Apache responded in the affirmative, it was after the 30 days.

Great American challenged coverage stating, among other provisions, that Apache’s failure to provide timely notice barred coverage.  In its complaint Great American claimed the untimely noticed deprived the insurance company the opportunity to participate in a mediation where a global settlement offer was made that was far less than the ultimate settlement values.  This, according to Great American, prevented meaningful its participation in the resolution of the underlying matters, inflated Apache’s exposure, and eroded coverage underlying the Great American policy.

On Thursday, January 25, the Court agreed with Great American and determined Apache’s two-year delay in providing notice to the insurance company barred coverage under the terms of the policy.

References

The case is Great American Assurance Co. v. Apache Industrial Services Inc. et al., case number 4:24-cv-00292, in the U.S. District Court for the Southern District of Texas.

 

Molly advises on all aspects of litigation, from risk mitigation to pre-suit investigation to trial investigation, and has extensive experience conducting depositions and handling motion practice. She represents clients in connection with commercial and industrial accident claims, construction disputes, engineering and design defect cases, contract and indemnity disputes, and general insurance defense litigation. In the oil and gas sector, Molly advises service companies, manufacturers, producers, operators, well interest owners, and others in complex matters before state and federal courts and regional governing agencies.

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